chairman’s 2015 reportpsc.mt.gov/portals/125/2015 psc chairmans report.pdfchairman’s 2015 report...

Chairman’s 2015 Report

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Dear Montanans,

The past year at the Montana Public Service Commission included some of the most

substantial changes to Montana’s utility landscape that our state has experienced in recent years,

with the initiation and conclusion of multiple high profile dockets, prompting significant policy

adjustments. The PSC has been working diligently to achieve our primary goal of efficient and

effective regulation of utilities in our state to ensure the best outcome for consumers. With that

goal in mind, the decisions made by this Commission, though rarely easy, must be made with a

broad perspective in order to avoid adverse impact to our state.

My first year on the Commission was, in my opinion, a year of successes for Montana

consumers, and I was grateful to be a part of it. Although there are many challenges on the

horizon for energy policy in Montana, I am confident that strong leadership from our state’s

policymakers can provide a positive path forward. We have already laid the groundwork for that

path over the past year at the Public Service Commission, and this report will outline some of the

highlights of 2015.

Although the five members of the Commission don’t always agree on every issue, I strongly

believe that each individual currently serving has the best interests of their constituents in mind

with every vote that they take. I am humbled and honored to have the opportunity to work with

such fine public servants, and I look forward to the opportunities ahead of us to serve the people

of Montana.

This report is by no means a comprehensive compilation of the Commission’s work over

the past year, however, it does summarize many of the “high level” issues and dockets that the

PSC tackled in 2015. We have a lot on our plates in the coming months that will require tenacious

attitudes, and watchful eyes, but I am confident that this Commission will continue to serve

Montana consumers with the quality that they deserve.

Sincerely,

Chairman Brad S. Johnson

DISCLAIMER: This document is distributed as a communication from PSC Chairman Brad Johnson, and does not necessarily

reflect the views of the other commissioners. PSC staff contributed objective information and research to this report, and

any normative statements are a communication from the Chairman.


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Table of Contents

By the Numbers 3

Major Investor Owned Utility Rates for 2015 3

Pipeline Safety Annual Review 5

Modernizing the Public Service Commission 7

Top Issues 2015- Electricity 10

Top Issues 2015- Telecommunications 27

Top Issues 2015- Transportation 30

Connect with the Montana PSC 36


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By The Numbers:

Total Dockets Opened in 2015: 94

Total Dockets Completed in 2015: 49 of 94

Total Budget Fiscal Year 2016: $4,133,777

Total FTE Count: 38.44

2015 Rates for Montana’s Largest Investor-Owned Utilities (As of the 1st day of each month)

NWE Gas (therm)

MDU Gas (dkt)

EWM Gas (ccf)

NWE Electric (kwh)

MDU Electric (kwh)

Big Sky Gas (therm)

January Total Rate Supply Rate Service Chg

$.8022567

$.42459

$7.30/month

$7.1875

$5.932

$.23/day

$.62265

$.3463

$7.25/month

$.108404

$.067335

$5.25/month

$.076186

$.02646

$.18/day

$.39

February Total Rate Supply Rate Service Chg

$.7587567

$.38109

$7.30/month

$6.5695

$5.314

$.23/day

$.62818

$.35186

$7.25/month

$.109362

$.068293

$5.25/month

$.076006

$.02628

$.18/day

$.3332

March Total Rate Supply Rate Service Chg

$.7327067

$.35504

$7.30/month

**

$6.321335

$4.951

$.25/day

$.61587

$.34069

$7.25/month

$.113811

$.067964

$5.25/month

$.076016

$.02629

$.18/day

$.3245138

April Total Rate Supply Rate Service Chg

$.7299667

$.3523

$7.30/month

**

$6.156335

$4.786

$.25/day

$.50325

$.2349

$7.25/month

$.113387

$.06754

$5.25/month

$.077166

$.02744

$.18/day

$.345

May Total Rate

$.7012867

$.32362

$7.30/month

**

$5.661335

$4.291

$.25/day

$.48989

$.22184

$7.25/month

$.113418

$.067571

$5.25/month

$.074876

$.02515

$.32


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Supply Rate Service Chg

$.18/day

June Total Rate Supply Rate Service Chg

$.7025447

$.32362

$7.30/month

$5.5835

$4.204

$.26/day

$.51995

$.25198

$7.25/month

$.113004

$.067157

$5.25/month

$.093736

$.02404

$.18/day

$.32

July Total Rate Supply Rate Service Chg

$.7191124

$.34001

$7.30/month

$5.8905

$4.511

$.26/day

$.49012

$.22203

$7.25/month

$.108876

$.067498

$5.25/month

$.092956

$.02326

$.18/day

$.32

August Total Rate Supply Rate Service Chg

$.7043724

$.32527

$7.30/month

$5.8905

$4.511

$.26/day

$.50415

$.23588

$7.25/month

$.109396

$.068018

$5.25/month

$.092296

$.0226

$.18/day

$.36

September Total Rate Supply Rate Service Chg

$.7024424

$.32334

$7.30/month

$5.8905

$4.511

$.26/day

$.50418

$.23541

$7.25/month

$.109417

$.068039

$5.25/month

$.094706

$.02501

$.18/day

$.36

October Total Rate Supply Rate Service Chg

$.6977124

$.31861

$7.30/month

$5.4185

$4.039

$.26/day

$.49209

$.22306

$7.25/month

$.108878

$.068153

$5.25/month

$.076306

$.02658

$.18/day

$.30

November Total Rate Supply Rate Service Chg

$.6699204

$.290818

$7.30/month

$5.4185

$4.039

$.26/day

$.49759

$.22842

$7.25/month

$.109143

$.068418

$5.25/month

$.075496

$.02577

$.18/day

$.275

December Total Rate Supply Rate Service Chg

$.6564604

$.277358

$7.30

$5.0795

$3.70

$.26/day

$.50449

$.23543

$7.25/month

$.106293

$.065568

$5.25/month

$.075126

$.0254

$.18/day

$.264


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NOTES AND DISCLAIMERS:

This document shows the tariff-verified rates for each utility as of the first day of the month. Mid-month changes are not

reflected here.

MDU’s electric power supply costs consist of fuel used in its generating stations, energy purchases from MISO and a

seasonal capacity contract.

NWE’s electric supply rate includes the cap-ex rate base value of its owned generation.

NWE’s electric supply rate includes Federal production tax credits for wind resources.

NWE’s gas cost includes the Battle Creek, Bear Paw, and Devon revenue requirements (update 11/2013).

Gas supply rates for each company may include transportation and storage costs from other parties.

The supply rates as shown on this document do not include any deferred supply rates.

** - MDU’s gas rate includes an interim rate adjustment of 9.65% on the delivery charge and the basic service charge. On

a customer’s bill the rate is not shown in this manner. MDU charges the pre-interim rate, and then has a separate line item

where they take the total delivery for the month and the total service charge for the month and apply the 9.65% interim

adjustment.

Pipeline Safety Annual Review Inspections: 157 days in the field

2015 Total Budget: $ 282,000, 80% of final expenditures are refunded through Federal Pipeline Safety

Grant.

Places Visited by PSC Inspectors in 2015


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Incidents

There were no incidents in 2015

Of the three reports of possible incidents received by the Commission, all three incidents were later

determined to be outside ‘incident’ definition. Those reports were rescinded.

A Reportable Incident is:

i. A Death or an Injury requiring hospitalization

ii. Property Damage greater than $50,000

iii. Unintentional Gas Loss of 3 Million cu.ft. or more

Anaconda, March 19

House explosion, no injuries. Gas plumbing inside house was improperly abandoned.

Harlowton, April 30

Wheel loader in gravel pit, hit 4” transmission line. No injuries, NWE maintained gas service to Harlowton.

Missoula, November 7

Motor vehicle went through station fence and impacted the station heater unit. No injuries reported and

damaged amounted to less than $50,000

On March 22, 2016, the Commission assessed a fine of $11,000 on Five Valley’s Gas for a 2014 safety

violation that resulted in the injury of two people.

Inspection Goals

Inspections (goal to reach 190 Inspection Days)

Only 15 days of Training Scheduled

Continue to work w/ and Reduce # of Master Meter Operators

Federal and Regional NAPSR Meetings

St. George, UT & Indianapolis, IN


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Modernizing the Montana Public Service Commission

At the beginning of calendar year 2015, the PSC initiated an agency-wide “modernization” effort to

improve the efficiency and effectiveness of the Commission’s workflow. This included improving

Information Technology functions, as well as staff re-organization efforts.

Information Technology Upgrade

The Information Technology section (IT) of the PSC falls under the Centralized Services Division .

The ultimate goal of IT at the PSC is to facilitate the agencies objective to provide the best

possible services and support to commissioners, staff, and the citizens of Montana in a timely,

efficient and cost effective manner, as well as to continually review new technologies and ideas to

ensure that we are meeting the needs of everyone that we serve.

IT is integrated into nearly every function of the agency; from the creation and storage of digital content, to

receiving and delivering services and data. IT provides user administration, support, and system and

application development and is responsible for planning, development, implementation and maintenance of

comprehensive internal and state-wide IT solutions to better provide services to the PSC staff and to the

public.

In deviating from past practice, our servers are now currently being hosted by the State Information

Technology Services Division (SITSD) at the State of Montana Data Center (SMDC), with the exception of

one server that we use for live streaming our weekly business meetings. Our transition to the SMDC took

place roughly a year ago.

Like all other state agencies, the PSC is totally dependent on IT, not just to support and enhance our

business, but also to enable it. The task of IT is to support the PSC mission by developing, delivering, and

facilitating the use of IT services and resources; the primary contributions being:

The need to continue the existing focus on e-Services and system upgrades;

The need to rewrite our PSC intranet and public facing web application systems;

The need to provide fast and easy access to materials in hearings and business meetings;

The need to enhance the use of video to promote participation from remote areas; and

The need to increase customer and user capabilities;

Our strategy is to continue utilizing State Information Technology Service Division, Department of

Administration (SITSD) services to help free up IT staff time to be able to work on the above items.


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Many of PSC IT principles coincide with the Montana Information Technology Act, as well as the State of

Montana Information Technology Strategic Plan. Resources and funding will be allocated to IT projects that

contribute the greatest value and benefit to partakers, and duplication of processes will be minimized by

sharing data, systems, and applications within agency divisions. Information technology will be used to provide

educational opportunities to staff, enable business continuity, and provide privacy and security of data.

IT resources will be used in an organized, deliberative and cost-effective manner, and IT services will provide

delivery channels that allow citizens to determine when, where, and how they interact with state agencies.

Elimination of risks is a priority to protect individual privacy, and the privacy of systems information and

service offerings will incorporate security controls based on both state and federal security standards.

The PSC is increasingly dependent our information systems and needs. Managing how the agency uses and

leverages technology is crucial. In today’s evolving technology environment, effective IT governance can be the

difference between success and failure. Governance for PSC IT service delivery function stems from

commissioner decisions in a business meeting setting with guidance from the Centralized Services Division

Administrator, Communications Director and Computer Systems Analyst.

IT Goals and Objectives

Goal: New PSC Website

Supporting Objective/Action

Ensure trusted and resilient systems and information


User security awareness and training

Develop and implement the National Institute of Standards and Technology (NIST) based Security

Standards to ensure the confidentiality, availability, a n d integrity of PSC data and systems

Goal: Document Availability

Develop a way for commissioners and staff to have quick electronic access to

documents in business meetings and hearings.


Support and organize data relating to dockets in one secure location.



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Provide Commissioners and staff the equipment needed of access the information quickly and

easily from on site or remote locations.

Goal: Move to Electronic Storage


Update and develop a new process of better organizing our records (internal documents and

retention schedules).


Scan and store information in an organized manner that is helpful and usable to commissioners

and staff.

Goal: Case Management System


Research various case management systems, participating in demonstrations when possible.


Review costs and compare with what systems other state agencies are using to help avoid

unnecessary duplication, when possible.


Narrow down a system that is cost effective yet beneficial to all divisions within the agency.

Staff re-organization

The Public Service Commission is currently conducting a comprehensive assessment to evaluate

organizational structure and objectives, staffing, and human resources practices to ensure that we

effectively support our mission and our goals.

The assessment will be a collaborative process involving the Commission, managers, and staff to develop

specific human resource administration recommendations in alignment with best practices and policy,

and legal requirements, as well as to allow us to shape our culture and team to meet the needs of our

staff and constituents. The assessment will also allow for better services associated with knowledge

transfer and succession planning, which are critical considerations given the fact that the scope of

knowledge associated with the topics that we cover at the PSC are very specific and unique.

The staff re-organization will be conducted through calendar year 2016, and it is the goal of the

Commission to be completed by the end of the year.


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Top Issues in 2015

Electricity

The Clean Power Plan: Pushing back against poor public policy In response to the August 3rd, 2015 release of the EPA’s finalized version of the Clean Power Plan, a rule to

regulate carbon emissions from power plants, the Montana Public Service Commission raised several

concerns as to the plan’s practicality and effectiveness, as well the negative impact it will have on the

state’s economy.

Speaking to the Commission’s concerns, Chairman Brad Johnson, R-East Helena, said,

“The federal government is again asking Montanans to pay the price for its continued onslaught of

centralized regulatory schemes. Not only will this rule destroy thousands of quality jobs in Montana’s coal

industry, the double digit increase in electricity rates that will likely result constitute nothing less than a

new tax on energy, and there is no tax that places a more disproportionate burden on middle and lower

income Montanans than a tax on energy. I will be encouraging the Commission to explore every option

available to us to effectively push back against this blatant federal overreach.”

Addressing the practicality of the rule’s implementation, Vice Chairman Travis Kavulla, R-Great Falls, said,

“The EPA has taken a proposal that was difficult and expensive for Montana, and has made it much worse.”

The Commission continues to evaluate the 1560 page regulation. However, it is particularly concerned

with several elements on the proposed rule:

The final rule is much more stringent than the proposed rule. The EPA reports that, in 2012, the average

emissions rates for Montana’s power plants was 2,481 pounds of CO2 per megawatt-hour. The proposed

rule set a state emissions mandate of 1,771. That number in the final rule is 1,305, or an emissions rate

reduction of 47%.

The rule plays favorites with states. The State of Washington, for instance, is allowed to increase its

carbon emissions by 46%, even while Montana is required to cut its emissions.

“The Clean Power Plan is yet another example of top-down regulations from Washington, DC that fail to

take into account the specific circumstances of individual states,” said commissioner Bob Lake, R-

Hamilton. “In addition to destroying one of the base industries in our state’s economy, the EPA’s rule also


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punishes energy exporting states like Montana by forcing them to pay the price for emissions created by

another state’s energy demand. The EPA’s Clean Power Plan is terrible public policy that will result in

significant increases to residential electricity rates.”

District 3 commissioner Roger Koopman, R-Bozeman, believes the time has come for Montana to take the

lead in resisting what he terms "blind-sighted federal overreach."

"Obama's EPA has become a rogue agency that thinks it can ramrod anything it wants down the throats

of the states, as if executive agencies somehow have unlimited power and the Constitution is irrelevant.

These latest rules -- more draconian than ever -- could eventually double the cost of electricity in

America, crippling our economy and giving a major competitive edge to countries like China. All of this is

based on the scientifically dubious claims of climatic catastrophe, and the hysterical voices of

opportunistic politicians that drown out the calmer call for a reasonable and rational debate," Koopman

said.

The Commission had previously submitted a lengthy set of comments to the EPA on its proposed rule,

identifying technical problems with the way the state goals had been calculated. “The EPA has done almost

nothing to correct the problems we identified,” said Kavulla.

“Moving forward, the PSC hopes to work with Montana’s governor, attorney-general, and legislature in

deciding how the state should respond to the regulation,” said Chairman Johnson.

To view the Clean Power Plan, visit: http://1.usa.gov/1If7nt2

Montana-Dakota Utilities Rate Case

On June 25, 2015, the Montana Public Service Commission received a request from Montana-Dakota

Utilities for an $11.8 million, or 21.1%, rate increase for its approximately 26,000 customers in eastern

Montana.

The increase to the average MDU ratepayer resulting from the original request was estimated to be about

$14.80 per month. The Montana PSC must by law issue an order on the rate case within 270 days after

MDU filed the request. MDU’s last general electric rate review was in 2011, when the Montana PSC

approved an increase of just over 6%.

“The increasing regulation of energy production proposed by the federal government has concerned me

ever since I was elected to the Commission,” said PSC District 2 Commissioner Kirk Bushman. “Utilities

like MDU will have to continue to invest millions to meet new federal requirements, and I expect utilities

will continue to request larger rate increases than they have in years past as a result of these costly

regulations. The Montana PSC will most assuredly review the proposal by Montana-Dakota Utilities to

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determine if it meets all the necessary standards, including providing long-term benefit to Montana-

ratepayers.

Public Service Commission Vice Chairman Travis Kavulla represents northeastern Montana, including

Sidney, Glendive, Plentywood and Wolf Point where MDU electric customers are located. He said, “We will

review the request to determine if the utility took the most cost effective approach to supply their

customers with energy.”

MDU’s original application asked the Commission to authorize a 10% return for the capital invested by the

company’s shareholders. In addition to increasing the per-kilowatt-hour charge for energy, the original

request would have also increase the fixed monthly charge. MDU is also asked the Commission to approve

additional “rate riders” on customers’ bills related to environmental and transmission costs. It also

included a proposed revision to the net metering tariff under which customers who generate their own

electricity are credited for excess production.

To view Montana-Dakota Utilities’ news release regarding the rate increase request, visit

http://www.montana-dakota.com/utility-menu/news

With a 4-0 vote on December 15, 2015, the Commission rejected a $10.9 million interim electricity rate

increase requested by Montana-Dakota Utilities. The rate increase was requested as an interim adjustment that is part of their original 21.1%, $11.8 million increase that was under review in a contested rate case before the Commission at that time.

The Commission held a hearing on the MDU electricity rate case February 9 & 10, 2016 in Glendive, MT.

On March 22, 2016, the Commission issued an order approving a settlement between Montana-Dakota

Utilities, the Montana Consumer Counsel and the Large Customer Group.

One day prior to a hearing in Glendive in February, MDU and the consumer advocates reached a settlement, reducing the rate increase to 13.3% to be phased in over two years. The total rate increase for MDU’s roughly 26,000 customers in eastern Montana equals approximately $7.4 million.

In approving the stipulation, the Commission expressed skepticism of the utility’s proposal to include two

combustion engines installed in Sidney, Mont., into customer rates, leaving the decision to include the units in rates for a future rate proceeding. The Commission noted that the plant was not providing

economic energy supply for customers at this time, and had not been certified as a capacity resource at the time of the hearing.

Additionally, the Commission clarified its position on environmental upgrades, noting that utilities should not charge customers for pollution control technologies until emissions standards are actually in effect

http://www.montana-dakota.com/utility-menu/news


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and enforceable. The company has paid for upgrades to the Lewis & Clark Station in Sidney, Mont., and the

Big Stone Plant in South Dakota.

“Customers should pay only for power plants that are actually used and useful in providing utility service. If a plant isn’t providing value to customers, then customers should not be paying for it,” said Travis

Kavulla, R-Great Falls.

Although the settlement presented by MDU and the consumer advocates did not state an established return on equity (ROE), the Commission found a range of 9.0-9.5% to be an acceptable return on the equity investment by MDU’s shareholders, down from the last-approved ROE of 10.25%.

“It’s always positive when the parties can come together in a constructive manner and craft a solution to

a complex proceeding such as this,” said PSC Chairman Brad Johnson, R-East Helena. “Although a settlement was reached, that does not relieve the Commission of our responsibility to ensure

transparency of the process, and that’s why we required clarification of this agreement before signing off on it.”

The Commission’s clarification of the settlement does not change the rate increase, but it still must be agreed upon by the various parties before it is finalized.

The first phase of the rate adjustment is a $3 million increase, which goes into effect April 1, 2016. The second phase of the rate adjustment is a $4.4 million increase that goes into effect April 1, 2017.

The Commission approved the order including conditions on a 4-1 vote, with Commissioners Johnson,

Kavulla, Lake and Koopman voting in favor, with Commissioner Kirk Bushman, R-Billings, opposed.

“I commend the parties for their efforts regarding the stipulation reached in this docket,” Commissioner Bushman said. “The MDU rate application gives a preview of the challenges that Montana utility companies face, as it demonstrates the difficulty and exposes the flaws associated with trying to predict the energy future. I am very concerned about the impacts of overreaching federal regulations that will dramatically increase the cost of utilities’ services in Montana.”

To view the MDU rate case docket, visit: http://1.usa.gov/1QmjxDH

MT Judge Upholds Order on Dave Gates Outage

Following nearly two years of litigation, Montana District Court Judge Brad Newman affirmed on August 17,

2015 a 2013 order issued by the Montana Public Service Commission rejecting a request by Northwestern

Energy to increase electricity rates for unforeseen outage costs and so-called “lost revenues”

attributable to NorthWestern’s efficiency programs.

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The decision is in response to a lawsuit filed by Northwestern Energy against the Commission that

involved two issues: The Commission’s decision to disallow replacement power costs related to a 2012

outage at NorthWestern’s Dave Gates Generating Station at Mill Creek, as well as the Commission’s

decision to attribute fewer savings to NorthWestern’s energy efficiency programs than claimed by the

Company, which reduced certain costs that customers currently pay through their electricity supply

rates.

In affirming the PSC’s order in his decision, District Court Judge Brad Newman stated that, “The

Commission’s disallowance of replacement regulations costs and exclusion of claimed lost revenues was

proper in order to ensure reasonable and just rates.” Judge Newman went on to write, “The agency

appropriately utilized its experience, technical competence, and specialized knowledge and based its

decision on substantive evidence.”

“I am very pleased with the Court’s decision in this matter as it is a huge win for consumers across

Montana,” said PSC Chairman Brad Johnson, R-East Helena. “Private utilities must shoulder some of the

risk when making business decisions as it is not the role of the PSC to act as a rubber stamp and allow all

unforeseen costs to be passed on to consumers.”

“Past commissions may have more routinely allowed these kinds of expenses to be passed through to the

customers,” said Commissioner Roger Koopman, R-Bozeman, “but the current PSC puts a very sharp

pencil to every request that impacts power bills. That’s the PSC doing its job. We require the utilities to

prove their case, and in this instance, NorthWestern did not.”

PSC Vice Chairman Travis Kavulla, R-Great Falls, said "This litigation represented a utility company's

attempt to socialize all of its risk to a captive set of consumers, even while continuing to reap a large

profit. No business in a free market would have the ability to do that, and utilities should not either."

The Commission’s order resulted in approximately $4.2 Million being credited to all of Northwestern

Energy’s electric customers across the state.

Creating Tax Transparency in Customers’ bills

Voicing concerns of the effect that a state law regarding utility taxes has on consumers, the Montana

Public Service Commission voted 4-1 on January 25, 2016 to require NorthWestern Energy to create a proposal for increasing the transparency of taxes in customers’ monthly bills.

Throughout discussion during a work session on the issue, the Commission criticized a Montana law that allows taxes for Northwestern Energy to automatically pass through to their customers with very little PSC input, and also criticized the Montana Department of Revenue’s method of calculating NorthWestern Energy’s tax bill.


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NorthWestern Energy’s 2015 tax bill increased by over $22 million from last year, due in large part to the

2014 purchase of 11 hydroelectric dams from PPL. Montana law allows NorthWestern energy to automatically recover their tax bill from their customers without any approval from the PSC, less a deduction for its income-tax impacts.

In the 2015 legislative session, HB 190 would have ended the automatic pass through of NorthWestern’s taxes to their customers. The Commission unanimously supported the bill, but it failed to pass.

In an effort to better inform customers of the portion of their bill attributed to taxes, the PSC’s order requires NorthWestern Energy to create a proposal to calculate the specific dollar amount that each customer pays in taxes on their bill every month, as well as create a proposal to remove recovery of taxes out of fixed rates and include all taxes in a single volumetric rate.

The PSC’s decision followed a roundtable discussion held in December with Northwestern Energy and

Department of Revenue officials. At the roundtable, the Commission probed DOR on their valuation methods, as well as NorthWestern Energy on their efforts to reduce their tax bill and their methods of disclosure to customers.

To view the Commission’s order, visit: http://1.usa.gov/1Qoj98h

Ending the Lost Revenue Adjustment Mechanism (LRAM)

The Montana Public Service Commission voted 5-0 on October 16, 2015 to discontinue a mechanism known

as the Lost Revenue Adjustment Mechanism (LRAM), which allowed NorthWestern Energy to increase

electric and gas supply rates to account for reduced sales volumes attributed to its energy efficiency

programs. Next year alone, the discontinuation of the LRAM is estimated to result in a $16 million

reduction in the amount collected from NorthWestern Energy’s customers.

The 19-page final order approved by the Commission details the rationale for its decision.

Speaking to the historical context of the LRAM, PSC Vice Chairman Travis Kavulla, R-Great Falls, said,

"This policy was developed when NorthWestern earned no profit on energy sales and was merely a pass-

through entity that owned poles and wires. Today, that reality has changed fundamentally and so should

this program. With this policy repealed, I look forward to the opportunity to consider alternatives that

make more sense both for the utility and consumers."

In motioning to repeal the LRAM, Commissioner Roger Koopman, R-Bozeman, said,

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“Raising rates on consumers when they respond positively to energy conservation is one of the worst

ideas policymakers have ever come up with. Once again, this commission has shown the courage to

challenge existing bad policy, and to stand up for the consumer who has been paying dearly for it.”

“The LRAM has only adjusted rates upward for NorthWestern Energy customers since it was put in place a

decade ago.” said PSC Chairman Brad Johnson, R-East Helena. “In addition to continual upward pressure

on rates, the LRAM mechanism also promotes ratemaking on a single issue, discouraging comprehensive

analysis of electricity rates as a whole, with the consumers ultimately paying the price for this inferior

regulatory practice.”

“Discontinuation of the LRAM will simplify electricity rate calculation, and improve the Commission’s

ability to ensure that rates are just and reasonable for NorthWestern Energy customers,” said

Commissioner Bob Lake, R-Hamilton. “Simplifying rate calculation as a result of the LRAM discontinuation

will ultimately benefit the entire state, as rates will become more transparent, and better reflect the true

costs of service.”

“It just doesn’t make sense for public policy to allow an electric company to encourage their customers to

save money on their monthly bill by conserving energy, and then turn around and increase electricity

rates on everybody to recover that lost revenue,” said Commissioner Kirk Bushman, R-Billings.

The lost revenue adjustment mechanism was originally established in Montana as a result of a MPSC

order in 2005.

To view the Commission’s final order on the LRAM repeal, visit: http://1.usa.gov/1X9o1RU

NorthWestern Energy Hydro-Compliance Docket

On December 9, 2015, NorthWestern Energy (NWE) filed a Hydroelectric Facilities Purchase Compliance Filing (Hydro Compliance Filing) with the Public Service Commission (PSC). In 2014, the PSC ordered NWE to make “a final compliance filing in December 2015 to reflect post-closing adjustments, the future conveyance of Kerr to the CSKT, and the actual property tax expense for the Hydroelectric Facilities.”

Order 7323k, Dkt. D2013.12.85, ¶ 190 (Sept. 25, 2014). It also ordered NWE to “track revenue credits on a portfolio basis through the electricity supply cost tracker.” Id. ¶ 191.

NWE proposed the following adjustments, which increase the Hydros’ revenue requirement by

$24,465,682: A decrease of ($20,604,912) for expenses associated with Kerr; an increase of $41,820,651 to account for lower forecasted sales volumes and market prices resulting in lower revenue credits; an increase of $3,208,800 for state and local property taxes; and an increase of $41,142 for other post-closing adjustments. Additionally, over a twelve-month period, NWE proposes to refund ($6,925,834) for Kerr fixed costs collected since Kerr was transferred, and to collect $14,103,153 for revenue credits that

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it has over credited since the Hydros were acquired. These adjustments result in a total revenue increase of $31,643,001.

On January 19th, 2016, the Commission approved the interim rate increase requested by NorthWestern Energy. A final decision on the compliance docket will be made by the Commission in the first half of 2016.

Calculating Colstrip Operating Costs

Variable Expenses for Colstrip Energy Production, 2014

*This calculation incorporates the total fuel expenses for Colstrip 4 for July 1, 2014-June 30, 2015, as

reported in D2014.7.58 (NWE electric supply tracker), and net generation in 2014 from NWE’s 2014 FERC 1

form. The fuel expense can be found in D2014.7.58, NorthWestern Energy’s 2015 Electric Supply Tracker

and Pre-filed Direct Testimony, p. FVB-4 http://psc.mt.gov/Docs/ElectronicDocuments/pdfFiles/D2014-

7-58IN15052951973AP.PDF

All other figures in this table are derived from 2014 FERC Form 1

NOTES:

1) PSC staff calculated two different values for “variable” costs: one is based only on fuel costs

(row entitled “Fuel Expenses” in above table), and the other on the costs of fuel and other operational expenses, such as steam and electric expenses, and various categories of maintenance (row entitled “Total Production Expenses” in table). Why two values of variable

expense? Staff reasoned that a fuel-only variable cost would be useful in judging whether a unit is economical to run in a short-term market (when most non-fuel operational costs would continue), while a comprehensive variable cost would be useful in judging economical value over a longer term, e.g., when a unit is retired and most operational costs are discontinued or decreased.

Puget

Units 1&2

Puget

Units 3&4

NWE

Unit 4

PacifiCorp

Units 3&4

PGE

Units

3&4

Avista

Units

3&4

Fuel Expenses ($/MWh) $19.92 $16.61 $16.46 $15.53 $16.24 $14.68

Total Production Expenses,

incl. Fuel ($/MWh) $27.20 $28.20 $24.10 $22.30 $24.30 $23.40

NWE Fuel from 2015 Tracker

($/MWh)* $15.11

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2) Puget’s FERC Form 1 data reveal a measurable difference in fuel costs between Units 1&2 and

Units 3&4. That difference may be attributable to the age, operational, and capacity differences between Units 1&2 (older and smaller) and Units 3&4 (newer and larger).

3) Most of the fuel expenses for Units 3&4 from the respective utilities are similar, in the $15.50-$16.60/MWh range, with the exception of Avista, which reports $14.68. We don’t have the data behind the reported figures, so we can’t explain the difference. However, Avista’s figure for total production expenses for Units 3&4 falls toward the lower end of the range of total production expenses.

4) Staff is not sure why the two approaches for calculating NWE’s fuel expenses for Unit 4 yielded

somewhat different results. Because the tracker data does not include net production numbers, staff used the fuel expense figures from the tracker with the net generation from FERC Form 1 to develop the tracker-based calculation. It could be that NWE used different generation figures in those two data sources.

Questions:

1) Is permission of other co-owners required when ownership changes hands of another unit?

2) What about when a unit is closed?

3) Is there any provision for decreased dispatch to reflect the desire of one of the co-owner’s to ‘retire’

their share?

4) Are there option-to-buy provisions in any case?

5) When A&G costs that have been absorbed by the older units are no longer being defrayed by them, do

they automatically re-allocate to the newer units’ co-owners, or are they absorbed by the older units’

owners?

Response:

1) No. See Section 24 on pages 26-28. Transfers and assignments of any and all interest of each

Owner may be transferred and assigned based on the provisions of subsections (a) through (g). Interest/ownership and obligations/duties are all required to be transferred or assigned together, where one entity cannot control the interest while another entity is responsible for operational requirements, for example.


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2) Not discussed in the Ownership & Operation Agreement. The only provision is in Section 31, titled

“End of Project” on page 30. This section discusses the sale of the unit being taken out of service to the highest bidder, and whether to sell as a whole or in parts for the largest profit.

3) Not discussed in the Ownership & Operation Agreement.

4) Yes. See Section 24(f) on pages 27-28. This subsection states that the interest can be transferred or assigned to any person, provided that it is first offered to the other project users at an amount offered by any other buyer.

5) Not discussed in the Ownership & Operation Agreement.

6) No other relevant information discussed in the Ownership & Operation Agreement.

Analyzing the Northwest Power & Conservation Council Draft 7th Power Plan

The Northwest Power Act (of Congress) of 1980 established the Pacific Northwest Electric Power and

Conservation Planning Council (“Council”) and directs the Council to adopt a regional energy conservation

and electric power plan and a program to protect fish and wildlife on the Columbia River and its

tributaries. The Power Act defines the Pacific Northwest area as the states of Oregon, Washington, Idaho,

and the portion of Montana west of the Continental Divide (as well as small Columbia-basin areas in

Nevada, Utah, and Wyoming). The Council is governed by an eight-member group comprising two

appointed representatives from each of the four principal states in the region.

The Council updates both the fish and wildlife plan and the 20-year power plan every five years. The

power planning effort must fulfill the purposes of the Power Act, which include:

- To assure the Northwest of an adequate, efficient, economical, and reliable power supply;

- To encourage conservation and efficiency in the use of electric power and the development of

renewable resources in the Northwest;

- To provide for the participation of states, local governments, consumers, tribes, and other

regional constituencies in the planning process; and

- To protect the fish and wildlife of the Columbia River and its tributaries.

The Council released the Draft 7th Power Plan in October 2015. On June 30, 2015, Montana’s two members

of the Council met with the Public Service Commission to discuss the power planning process. In early

November, the Council held hearings in Kalispell and Missoula to collect public input on the Draft 7th Plan.

The Council has set a deadline of December 18, 2015, for public comment on the Draft 7th Plan.


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Structure of Draft 7th Plan

The Council applies an integrated resource planning strategy and philosophy (also called least-cost

planning). This approach recognizes load uncertainty, emphasizes risk management, and reviews all

available and reliable resources to meet current and future needs.

The Draft Plan includes five parts: “Executive Summary,” “Resources Strategy and Action Plan,” “Demand

and Price Forecasts,” “New Resource Potential,” “Developing a Resource Strategy,” and “Other Plan

Elements” (transmission planning, environmental methodology, and fish and wildlife program). The parts

are made up of 20 chapters.

The Draft Plan includes 15 appendices, which address financial presumptions, various forecasts

(electricity prices, fuel prices, economic, and energy demand), conservation and generating resources,

modeling methods, and climate change impacts. Numerous technical data sources are also provided with

the Draft Plan.

Overview of Draft 7th Plan

Based on modeling used to test how different resources would perform under a range of future

conditions, the Draft Plan finds that “energy efficiency consistently proved the least expensive and least

economically risky resource.” Acquiring that energy efficiency is the Draft Plan’s primary action for the

next six years.

The Draft Plan’s second priority is to develop demand response resources or rely on increased market

imports to meet the Northwest’s power system capacity needs under critical hydro and weather

conditions. It’s likely that in low water periods, the region will need additional winter peaking capacity to

maintain system adequacy.

After efficiency and demand response, the next most cost-effective resource option for the region is new

natural gas-fired generation. Together, efficiency, demand response, natural gas generation, and new

renewable energy (required by renewable portfolio standards, which exist in three of the region’s four

states), make up the principal components of the Draft Plan’s resource portfolio.

Figure 1-2, from the “Executive Summary” of the Draft Plan and reproduced on page 8 of this memo,

shows the average resource development across all futures modeled by the Council. (Demand response,

considered as a resource for addressing peak demand, is not included in average capacity calculations.)

The projected contributions in 2035 from significant (new) resources include:

- Energy efficiency 4,558 MW

- Natural gas 320 MW


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- Solar 128 MW

- Wind 96 MW TOTAL 5,102 MW

In presenting its anticipated resource portfolio, as well as making the consumption, development,

economic, and policy projections that underlie it, the Council emphasizes that its Draft Plan provides

regional guidance and that individual utilities have varying needs and access to markets and may make

singular investments in resources to meet their adequacy and reliability needs. As a result, new natural

gas generation may be required by a particular utility, even if that utility pursues efficiency and demand

response.

Key Projections

- Loads: increase 2,200-4,800 aMW by 2035 (110-240 aMW/year)

o Growth = 0.5-1.0%/year

- Peak load (winter): from 31,000 MW in 2015 to 32,000-36,000 MW in 2035

o Growth = 0.4-0.8%/year

- Wholesale electricity price (Mid-C): from $32.50 in 2014 to $33-$60 in 2035 (2012 dollars)

- Natural gas: $3.50/MMBtu in 2015 to $3.00 (low-range) or $10 (high-range) in 2035

- Demand response: 1,500 MW available at less than $25/KW peak capacity/year

- Generation resources (see Figure 1-4, page 8)

o Efficiency $ 18-$30 (per MWh)

o Nat. gas/CCCT $ 75 o Solar PV/base $ 99 o Wind/Colum. $115 o Nat. gas/recip. $142 o Nat. gas/aero $145

System Trends and Changes

- System shift: Several factors, including increased reliance on variable-energy resources

and the balancing of fish and power needs in the hydro system, have made the Northwest

more capacity-constrained and less energy-constrained. This is a large and ongoing change from the traditional state of the regional system.

- Imported power: Past regional power plans placed no reliance on power imported from

external markets (Canada, California, and the Southwest). In this plan, the Council modeled a scenario in which such imports of peak power were found to be less costly and economically risky than demand response.


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- Renewable slowdown: Renewable energy development, especially wind, is not expected to

proceed as rapidly as in the recent past because the region currently has an energy surplus, yet faces challenges in meeting peak loads. Renewables contribute energy, but offer little value in providing winter peak capacity.

- Natural gas: Across the Draft Plan’s modeling scenarios, the need for new natural gas

generation varied widely. Local situations may require new natural gas facilities, but from a regional aggregate basis, the need for additional new natural gas generation is very limited through 2021. By 2026, the probability of gas development rises to 80% in scenarios where

existing coal plants and less efficient gas-fired generation are retired to lower carbon emissions.

- Coal: The Draft Plan anticipates no new coal-fired generation development, but recognizes

the announced retirement of 550 MW of coal generation at Boardman (OR) in 2020, 670 MW (Unit 1) and 670 MW (Unit 2) at Centralia (WA) in 2020 and 2025, respectively, and 522 MW at North Valmy (NV, partially serving ID) by 2025, as well as the de facto retirement of 172 MW at J.E. Corette (MT) in 2015.

- Fish and wildlife: Between 1980 and the early 2000s, fish and wildlife policies shifted

reservoir storage and release patterns in the Columbia River hydro system, which has lost about 1,100 aMW (10%) of generating capability and 5,000 MW of peaking capability. Since the 6th Power Plan, increased reliance on the hydro system to provide within-hour balancing needs for wind generation has also diminished hydro peaking capability.

- Climate change: Long-term climate change will alter precipitation, river flows, and hydro

generation, and policies enacted to reduce greenhouse gases will affect future resource

choices. The Council is not tasked with resolving those uncertainties, but has investigated possible effects of climate change on the region’s power system.

Carbon Cost

One of the major uncertainties examined in the modeling that underlies the Draft Plan (in addition to

electricity demand, hydro production, and market prices of electricity and natural gas) is carbon dioxide

policy. Because state compliance plans for the Clean Power Plan are not scheduled to be completed

before adoption of the final 7th Power Plan, the Council tested alternative carbon emission reduction

policies--both with and without carbon costs--to assess their impact on the cost and risk of alternative

regional resource strategies.

Several results of the Council’s carbon modeling may be examined in tables and figures from the Draft

Plan reproduced on page 9 of this summary. From its analysis, the Draft Plan offered this conclusion:


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- Although compliance with the Clean Power Plan is a state responsibility, all of the Draft Plan’s

scenarios resulted in average annual carbon emissions below the EPA regional limit, i.e., the sum of state mass-based emission goals. “From a regional perspective [emphasis in original],” according to the Draft Plan, “compliance with EPA’s carbon emissions rule should be achievable without adoption of additional carbon reduction policies in the region.”

Proposed Actions (a selection from 46 listed actions)

- Achieve goal for cost-effective conservation acquisition (4500 aMW by 2035);

- Expand regional demand response infrastructure and market transformation;

- Adaptive and ongoing assessment and management;

- Provide continued support for NEEA;

- Encourage strengthening of efficiency codes and model conservation standards;

- BPA: analyze operating reserve requirements; mitigate oversupply conditions;

- Encourage various initiatives for resource adequacy standards, reserve margins, and system

capacity issues;

- Participate in and monitor WECC activities;

- Improve forecasting methodologies (sales, loads, emerging markets, etc.).

Comparison of Planning Expectations for the Council and for Montana Utilities

In evaluating the quality of the Draft Plan, the Commission may find it useful to consider how the planning

requirements and goals of the Northwest Power Act of 1980 resemble—or differ from—those placed on

Montana utilities by PSC administrative rules.

Both the Power Act and PSC rules emphasize the importance of cost effectiveness, implementation plans,

analysis of reliability and reserves, forecasts (economic, demand, load shape, fuel prices, etc.), a long-

term planning horizon, risk quantification and management, technology assessment, environmental

responsibility, and opportunity for public involvement. The respective planning expectations differ,

however, in matters of geography/jurisdiction (the Council prepares a regional plan that aggregates

data, while the PSC considers plans as submitted by individual utilities). Another significant difference is

that PSC planning objectives emphasize rate design, while the Council does not possess ratemaking

authority.

Though the Northwest Power Plan is built upon a foundation that differs in a couple of significant ways

from what the PSC is familiar with, the Draft Plan appears to have fulfilled the planning requirements of

the Power Act.


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Topics/Issues of Importance to Montana PSC

- The Draft Plan estimates that the average energy from distributed energy (mostly rooftop

solar) will be 80-220 aMW. This contribution, however, has little impact on winter system peak, but more impact on summer peak. The Draft Plan accounts for distributed energy in its load forecast, but not as a generation resource.

- Fish and wildlife impacts on the hydro system have been significant (see page 4), however the

2014 Columbia River Basin Fish and Wildlife Program has already been adopted, so the impact of integrating that document into the final 7th Power Plan appears to be unalterable by comment offered on the Draft Plan.

- Certain elements of the Columbia River Treaty, the U.S.-Canada agreement executed in the

early 1960s that addresses flood control and power optimization in the Columbia Basin, expire in 2024. The treaty’s provisions do not change automatically in 2024, however, and they are now the subject of negotiations between the U.S. and Canadian governments. The Council

admits that the uncertainty surrounding any future international agreement is significant, but discussion of that uncertainty and its potential ramifications is minimal in the Draft Plan.

Staff Assessment of the Draft Plan

The Draft Plan appears to have fulfilled its statutory obligations. It is well organized, clearly written, and

amply documented. Although we did not have the time or resources to dig deeply into the Draft Plan’s

modeling tools and methodologies, the Draft Plan explains that those tools and methodologies have not

substantially changed since adoption of the previous power plan. The scope of forecasting in the Draft

Plan is broad, and conclusions reached in the Draft Plan are supported by reasonable analysis and a

sensible blend of projection and risk.

The Draft Plan analyzed a robust set of scenarios. It evaluated over 20 scenarios and sensitivities against

800 alternative future conditions for load, hydro generation, natural gas prices, wholesale electricity

prices, and CO2 costs (including no CO2 cost). By way of comparison, NorthWestern Energy’s 2013

Electricity Supply Plan, as supplemented, evaluated six scenarios against 100 alternative future

conditions.

The Council’s scenarios define structural conditions that impact the type and timing of resources its

planning model selects to achieve a least-cost, least-risk supply strategy. For example, a scenario might

assume that a major existing resource is shut down to see how the model replaces that resource under

800 alternative future conditions. To continue the above comparison, NorthWestern’s planning scenarios

all defined which specific resources would be acquired and the timing of those resources. NorthWestern’s

model evaluated the cost of each scenario under 100 alternative future conditions.


25

Though we have made a few questioning observations about the Draft Plan, we believe that, taken as a

whole, it reflects a serious organizational effort that will become, upon final adoption, a useful tool for

understanding and informing power management in the Pacific Northwest.


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Telecommunication

Holding Telecommunication companies accountable: CenturyLink Service

Quality

The Montana Public Service Commission voted unanimously on July 22, 2015 to file a complaint in Montana

District Court seeking implementation of penalties against telecommunication provider CenturyLink QC,

for failing to meet minimum service quality standards on a statewide basis.

After extensive investigation into the case, the Commission found that CenturyLink QC was in violation of

Admin. R Mont. 38.5.3371, which requires that 90% of out of service reports across the state be fixed

within 24 hours. CenturyLink’s out of service repair rate within 24 hours for Montana over the past 3

years was 58% in 2013, 49% in 2014, and 69% in 2015.

In addition to filing the complaint against CenturyLink QC in Montana District Court, the PSC also voted

unanimously to investigate the use of the Federal Communications Commission Universal Service Fund

High-Cost Support subsidies received by CenturyLink QC. Specifically, the PSC will investigate the

possibility of not certifying CenturyLink QC to the FCC to receive additional high-cost support, or directing

CenturyLink QC in how they use the high-cost support funding.

With a 4-0 vote, the Montana Public Service Commission approved a settlement agreement on August 25,

2015 with telecommunications provider CenturyLink QC to address service quality violations across

Montana. The settlement agreement was in response to the Commission’s decision a month earlier to file

a complaint in Montana District Court.

As a stipulation of the settlement, CenturyLink QC has agreed to accept approximately $91 million over the

next 6 years from the Federal Communications Commission’s Connect America Fund phase II for

broadband infrastructure investment in rural Montana. CenturyLink QC also stated that they will ‘augment’

the CAF II funding with investments of their own to amplify the effects of the federal funds.

“It is a matter of public safety that all Montanans have access to reliable telecommunication services, and

the agreement with CenturyLink is a major step in that direction,” said PSC Chairman Brad Johnson, R-

East Helena. “In addition, the investment in broadband system development required by CenturyLink as a

result of this agreement will connect thousands of rural Montanans to a modern communication

infrastructure, a vital component to economic success in the 21st century.

“A modern broadband network is absolutely necessary to enable economic growth in this day and age,”

said Commissioner Bob Lake, R-Hamilton. “This agreement is an important move towards bringing much


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needed broadband deployment to rural Montana, opening the door to opportunity for significant economic

benefits in communities across the state.”

“Broadband infrastructure investment remains to be a very challenging issue in Montana due to our large

geographical area and low population, which leaves a lot of economic potential around the state

untapped,” said Commissioner Kirk Bushman, R-Billings. “Our hands are tied in how the FCC distributes

these fund, but we will continually look for opportunities within our purview to improve broadband

networks across Montana.”

The settlement agreement was signed by the Missouri River Residents for Better Telecommunications

Service, PSC Advocacy staff, and CenturyLink. The Montana Consumer Counsel was an active party to the

proceeding, but declined to sign the settlement.

In addressing the key components of the agreement, PSC Vice Chairman Travis Kavulla, R-Great Falls,

said, “This settlement is not perfect, but it accomplishes two objectives. First, it puts needed controls on

a runaway program of federal subsidies. Second, it directs more than $90 million to rural areas where

phone service has deteriorated over the years and the internet has been virtually non-existent.”

The central components of the settlement agreement are:

CenturyLink has agreed to accept the Federal Communications Commission Connect America Fund (CAF) Phase II offer. CenturyLink in Montana will receive over $91 million over the next six years to deploy 10 megabit per second down and 1 megabit per second up broadband to over

33,000 rural high cost locations in Montana. CenturyLink anticipates that the requirement to build

out to 33,000 or so customers will allow them a jumping off point to serve approximately 60,000 additional consumers.

As part of the agreement CenturyLink has agreed to prioritize the Cascade and Missouri River

Canyon areas for broadband deployment.

CenturyLink also agreed to implement a service improvement plan in Wibaux and Wolf Creek to fix chronic service problems in those areas.

The Commission has agreed to close its CenturyLink Service Quality Investigation and to not

pursue fines in District Court

Commissioner Roger Koopman, R-Bozeman, abstained in the vote, saying that “The marketplace, not

subsidies, are the best way to address broadband needs in the long run, with pricing that reflects true


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cost. Personally, I’m not of the opinion that just because you want something, government should force

everyone else to pay for it.”

To view the service quality docket, visit: http://1.usa.gov/1JvrCEV

ETC Certification

The Montana Public Service Commission voted 5-0 on September 22, 2015 to certify 26 companies and

affiliates as eligible telecommunications carriers (ETCs) for 2016, opening the doors for approximately

$100 million dollars in broadband investment funds to be utilized across Montana over the following year.

The funds that each ETC is eligible to receive come from the FCC’s Universal Service Fund to improve

communication infrastructure in unserved and underserved areas across the country.

The FCC’s Universal Service Fund includes four components: Connect America Fund, Low Income

Assistance (Lifeline), E-Rate (schools and libraries), and Rural Healthcare, totaling approximately $100

million available for broadband investment in Montana over the next year to the 26 certified ETC’s.

Ratepayers in Montana contribute approximately $28 million to the USF annually.

All 26 ETC applicants met the requirements to receive universal services funding set by the Federal

Communications Commission and the Montana Public Service Commission.

As a stipulation for accepting the high-cost support resources from the Universal Services Fund, ETCs

are required to invest those resources in networks capable of both broadband and voice service in

unserved and underserved parts of the state, primarily in rural areas. In addition to fiber infrastructure,

the USF funds are also used to improve cellular and traditional phone line services in underserved parts

of Montana.

Extending the life of the “406” area code

The Federal Communications Commission announced on October 27th, 2015 that actions taken by the

Montana Public Service Commission has extended the life of 406 as the exclusive area code for the entire state of Montana.

With population increases and correlating phone number growth in the state, the exhaustion of the 406

area code will eventually force the state of Montana to adopt an additional three digit area code. The original projection released by the FCC in 2013 predicted exhaustion of the 406 area code by 2019. The

Montana PSC took immediate action in an effort to delay that exhaustion forecast by requiring mandatory number pooling by phone service providers in the state.

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30

The FCC’s updated forecast for exhaustion of the 406 area code as a result of the PSC’s actions is now

projected in the year 2022. The FCC requires planning for a new area code to begin three years in advance of the forecasted area code exhaustion date.

In response to the FCC’s updated forecast, PSC Commissioner Roger Koopman, R-Bozeman, said,

“We are very pleased to find out that our actions have kept the whole state of Montana ‘the 406’ for a while longer, and we are looking for any way possible to extend the exhaustion deadline out even further. It’s likely that the state will eventually have to adopt an additional three digit area code to accommodate growth, but we hope to push that off for as long as possible, as we know our single area code is a matter of pride for many Montanans.”

A key part of the extension of the forecasted exhaustion deadline is cooperation from Montana telecommunications providers with access to numbering resources, which have been very helpful in the

number pooling process

Montana is one of twelve remaining states with a single area code.

To view the PSC’s 2013 order requiring mandatory number pooling, visit: http://1.usa.gov/1NDJXQs

Transportation

Implementation of Senate Bill 396 Following weeks of public comment analysis, the Montana Public Service Commission on August 4, 2015

unanimously approved the final version of regulations to allow ride sharing companies to operate in

Montana. The rules implement Senate Bill 396, which passed the legislature during the 2015 session.

Approval paves the way for ride sharing companies, known as Technology Network Carriers (TNCs), to

apply for a license to operate in Montana. The final rules create a new regulatory designation to operate

under a Class-E license.

Additionally, the rules implement a change in the standard the PSC uses to determine whether passenger

services may operate. Previously, a business had to prove it was “needed” in the market and that it would

not compete against other businesses in the market. Today, after SB 396’s passage, the PSC only is

required to determine that the business is fit to operate in order to grant a certificate.

“Moving forward with this rulemaking process encourages innovative businesses to provide new and

useful services in Montana,” said PSC Chairman Brad Johnson, R-Helena. “There will be some wrinkles to

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iron out once this rule is put into practice, but the Commission will continually look for ways that we can

improve these regulations to ensure an even playing field for transportation services in Montana.”

UBER On December 15, 2015, The Commission approved the license of Rasier-MT, LLC (Uber) on a 4-1 vote, making them the first Technology Network Carrier (TNC) transportation company authorized to operate in Montana.

“By embracing advancing companies like Uber, Montanans not only have another option to get from one place to another, but there is now an additional incentive for existing transportation companies to improve as well,” said PSC Chairman Brad Johnson, R-East Helena.

Senate Bill 396, which was drafted in part by PSC Vice Chairman Travis Kavulla, was passed by the 2015

Montana Legislature this past spring, opening the door to app-based ride sharing companies like Uber to operate in Montana. Rasier-MT, LLC (Uber) is currently the only company to have applied for a Class-E TNC license under the new law.

“Before this legislation, the PSC was required to determine whether the public needed a new service. That is a question properly answered by consumers themselves and not a government agency. It’s exciting to see more choices for customers in the transportation marketplace,” said PSC Vice Chairman Travis Kavulla, R- Great Falls.

During the 20 day protest period last month the PSC received one protest of Uber’s application, which was from the Montana Authority Holders Association. Upon issuance of a deadline by the Commission for a Notice of Appearance, the protest was withdrawn, allowing the Commission to move forward with the approval of Uber’s application without a contested hearing.

In dissenting on the approval, Commissioner Bob Lake, R-Hamilton, said,

“The Commission’s actions today gives one type of business model within the transportation industry a special exception that provides an unfair advantage to compete with existing businesses, and we are not

doing consumers any favors by doing so. Uber will operate without any oversight from a Montana based agency. This will have a detrimental effect on the current license holders, and by approving this license

we are throwing a bunch of people under the bus.”

The approval of Rasier-MT, LLC’s (Uber’s) license is effective immediately and allows the company to begin operating right away.


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Improving Rail Safety in Montana

In October 2015, The Legislative Audit Division of the State of Montana published a performance audit, “Railroad Safety,” which evaluated the operations of three state agencies, including the Montana Public Service Commission (“Commission”). On November 3, 2015, in a regularly scheduled work session, the Commission established an investigative docket concerning railroad safety. On November 5, 2015, the Legislative Audit Committee discussed the railroad safety audit and its several recommendations for the Commission.

In order to appropriately address the legislative audit and related railroad safety issues, the Commission

scheduled and held a public roundtable on railroad safety in the Commission meeting room on January

20, 2016.

Agenda The roundtable agenda included these topics:

- Introduction - Overview of railroad safety docket (N2015.11.84)

- Risk assessment, safety goals and objectives, state safety plan - Engagement with state and federal agencies, emergency planning - Railroad crossings - Additional Commission safety inspector staff positions

- The Commission’s continued role in railroad safety oversight - Conclusion

Participation

The roundtable was presided over by Commission Chairman Brad Johnson, who was accompanied by

Commissioners Koopman, Lake, and Bushman. Attendees included representatives of the Legislative Audit

Division, Federal Railroad Administration (“FRA”), Montana Rail Link (“MRL”), Burlington Northern Santa Fe

Railroad (“BNSF”), Montana Department of Environmental Quality (“DEQ”), Montana Department of Military

Affairs/Disaster and Emergency Services Division (“DES”), Northern Plains Resource Council, Roosevelt

County Commission, and Brotherhood of Locomotive Engineers and Trainmen (“BLET”), as well as

Commission staff employees and members of the public.

Introduction

Chairman Johnson initiated the roundtable at 9:30 a.m., asked participants to introduce themselves, and

reviewed the agenda. He said that the roundtable would end at 12:00 noon. Commission staff attorney

Jeremiah Langston provided background information and a chronology of events for the roundtable.


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Summary of legislative audit

Ken McCormick, lead author of the railroad safety audit, summarized the audit and its recommendations.

With regard to the Public Service Commission, the audit’s principal recommendations are:

- Increase involvement in the National Association of State Rail Safety Managers; - Conduct a state rail safety risk assessment and a state rail safety plan; - Actively engage with Montana Disaster and Emergency Services and other state and federal

agencies to ensure the rail safety program is proactively addressing risk.

Risk assessment, safety goals, and state safety plan

Ken Naylor, FRA Chief Inspector and based in Billings, provided a general picture of railroad safety

operations in Montana, explained FRA activities and state plans, and responded to questions regarding

Commission involvement. He said that FRA is adding federal inspectors in Glendive, Great Falls, and

Bozeman. As for the level of state-based inspection activity in Montana, he said that “Montana was pretty

equal” to the activities of neighboring states.

MRL and BNSF representatives described in some detail their respective company-based safety

programs, which include track inspectors, advanced technology and equipment, and data collection.

When asked by the Commission for their positions on whether the Commission should develop a state rail

safety plan, representatives of the legislative auditor, FRA, the rail companies, and the engineers’ union all

answered in the affirmative. BNSF observed that some states, including Washington, Oregon, and Iowa

either have or are developing state rail plans; the state of Iowa hired a contractor and produced a good

plan. Legislative auditor McCormick said that the National Association of State Rail Safety Managers has

published risk assessment guidelines in its manual of best practices.

On the question of what the scope of the Commission’s involvement in rail safety programs should be,

most commenters agreed that the Commission should focus on a preventative and inspection role, and

not one of incident response. Bonnie Lovelace of DEQ urged the Commission to set the scope of its

investigation, especially in terms of focusing on pre-incident or post-incident response.

Engagement with federal and state agencies; emergency planning

Ms. Lovelace described DEQ’s role in predominantly in the hazard/incident category, supported ongoing

planning and preparation processes within the agency. She suggested that the Commission examine

existing geographic response programs, which exist at the county level in Montana. She emphasized the

particular importance of waterways, and said DEQ would be interested in identifying vulnerable locations

in any risk assessment undertaken.


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Delila Bruno, representing DES, said her agency was involved in developing Pre-Disaster Mitigation

(“PDM”) plans. She described the State Emergency Response Commission (“SERC”) as a cross-section of

emergency planners, and suggested that the Commission become involved with SERC to become aware of

emergency response plans in Montana. Ms. Lovelace of DEQ also identified SERC as an important forum

for rail safety information and involvement.

Commissioner Kirk Bushman initiated questions and a subsequent discussion about what particular

expertise or resources the Commission might contribute to DES programs. Several of the responses—

from DES, DEQ, FRA, and the rail companies—centered on the idea of information exchange and increased

participation of the Commission, but no more specific responses were given.

Public comment

At 11:00 a.m., Chairman Johnson invited comment from members of the public who were present. Kate

Campbell and Jan Holme, both of Missoula, spoke of the risk of accidents rising with increased rail

transport of oil through Montana and urged the Commission to get more involved with rail safety and

oversee stronger efforts to develop plans and prevent accidents.

Blocked rail crossings

The Commission addressed the agenda topic of blocked rail crossings. The Commission had received

written comments from residents of Miles City who described high train speeds and crossing issues in

that community. A discussion ensued about federal track classifications and associated train speed limits.

No specific resolution or action plan resulted from the discussion.

Additional safety inspectors

Roundtable participants then discussed the idea of adding inspectors to the Commission staff. Dave

Jackson, a current inspector for the Commission, described how a staff of four full-time equivalent

inspectors, with one serving as a supervisor, could strengthen Commission capability from the existing

staff of two inspectors and a part-time supervisor. Chairman Johnson stated that the Commission was

willing to execute any mandate from the Legislature regarding rail safety, with the caveat that sufficient

resources for executing increased workload accompanied any mandate. Commissioner Roger Koopman

stated his agreement with Chairman Johnson, and observed that, because the Commission staff was

currently lean, the agency’s current budget did not allow for increased rail inspection staff.

Chairman Johnson said that a central question for him was, “Where is state government should railroad

safety responsibility reside?” He said that rail safety was not related to other Commission work and that

Commission involvement with rail safety was a vestige of past requirements of the Commission.


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Conclusion of roundtable; public comment

Chairman Johnson concluded the roundtable at 11:52 a.m. and invited additional public input. A resident of

Missoula, expressed concerned about increasing rail transport of oil through Montana and stated his

support for increased public spending on rail safety in the state.

Jerry McDonald, a Roosevelt County commissioner, described his concern for a rail crossing in the town

of Bainville, which he described as “a poster child for blocked crossings.” He said that rail traffic through

Bainville often blocked any kind of vehicular traffic, including that needed for emergency services.

Summary of suggested actions

Here are some of the suggested actions to be taken by the Commission that were discussed during the

roundtable (in addition to those from the legislative audit and summarized at the outset of the

roundtable):

- Execute a risk assessment and state rail safety plan; - Participate in incident planning, particularly SERC meetings; - Develop a contact list that can be distributed by DES to first responders;

- Add staff inspectors; - Evaluate changes in work schedules and division of duties of current inspection staff; - Seek additional resources from the Legislature for rail safety work; - Consider transfer of rail safety activities to other state agency(ies).

- The performance audit of the Montana Legislative Audit Division, “Railroad Safety,” may be viewed at: http://leg.mt.gov/content/Publications/Audit/Report/14P-13.pdf

- Comments to the Commission on rail safety may be viewed at the website for the Commission’s

rail safety docket: http://psc.mt.gov/Docs/ElectronicDocuments/getDocumentsInfo.asp?docketId=11705&do=false

PSC staff is currently engaging in the state Safety and Energy Response Committee meetings, and the rail

competition council to remain actively engaged with various stakeholders on issues of rail safety in

Montana.

The Commission expects to make a decision by November, 2016 regarding any possible proposal that may

need to be brought to the 2017 legislature to address any of the concerns presented in the legislative

audit.

http://leg.mt.gov/content/Publications/Audit/Report/14P-13.pdf

http://psc.mt.gov/Docs/ElectronicDocuments/getDocumentsInfo.asp?docketId=11705&do=false


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